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Will the Tuscaloosa Marine Shale Help Save This Company?

Comstock Resources has seen a tremendous turnaround in its operations; is now the time to buy on the back of Tuscaloosa upside?

Small-caps tend to fly under the radar, but when a promising investment emerges it's best to look for any unnoticed value we as investors can pounce on. Comstock Resources(NYSE:CRK)has a market cap of $1.35 billion and has seen a remarkable turnaround in its overall operations this year. In the first quarter of 2013, Comstock reported negative earnings per share of $0.52, with cash flow per share coming in at $1.17. In the first quarter of 2014, the independent energy company reported much better numbers: EPS came in at $0.02 and cash flow per share grew by 79% to $2.09.

To achieve those impressive results, Comstock had a radical change of heart. In the first quarter of 2014, Comstock saw natural gas production fall 30% as oil output surged 116%. To get a picture of what that looked like, oil production for the quarter soared from 4,800 barrels per day, or BPD, to 10,400 BPD, entirely on the back of its Eagle Ford position. As oil output rose, natural gas production plummeted from 174 MMcf/d to 122 MMcf/d.

This trend is projected to hold up for the rest of the year, with crude output (offering more consistent and profitable returns) climbing to ~13,000 BPD as natural gas production falls to ~107 MMcf/d. About 34% of Comstock's current output is weighted toward crude; management hopes to push that up to 40% by the end of 2014 to help maintain profitability.

This is just the beginning of a much broader change at Comstock, a development that could make investors rich. To keep up this oil fueled momentum, Comstock is seeking additional oil reserves by pushing into a new play located right next to the Gulf.

Exploration upsideIn the "black oil" window of the Tuscaloosa Marine shale, Comstock Resources is betting on uncovering riches in Louisiana and Mississippi. Investors should look at Goodrich Petroleum's(NASDAQOTH:GDPM) roughly 300,000 net-acre foothold in the Tuscaloosa to get an idea of what Comstock is hoping for. Goodrich Petroleum sees the hydrocarbon mix being weighted 92%-98% toward crude, with natural gas in the region supposedly having a high BTU content as well.

What makes the Tuscaloosa even more promising is that Goodrich Petroleum has seen some stellar production curves from a few of its wells. The Crosby 12H-1 has produced roughly 25% more barrels of oil equivalent than a typical Middle Bakken well after 15 months of production. Another well, the Smith 29H-1, is producing at a slightly lower rate relative to the Middle Bakken type curve, but the results are still very promising. Keep in mind that the average Middle Bakken well produces ~40% more hydrocarbons than the average Eagle Ford well (which Comstock is heavily invested in), making wells like Crosby 12H-1 all the more impressive.

Going forward there are two wells investors can pay attention to that further prove the potential in the Tuscaloosa Marine shale. The CMR 8-5 and the Blades 33H-1 just recently started producing, and over the next several months Goodrich Petroleum will most likely update investors on what the production curves of those two wells look like.

Due to Goodrich Petroleum's promising results from the Tuscaloosa, investors could expect similar things from Comstock Resources. With 52,200 net acres in the "black oil" window, being able to eventually de-risk that asset would substantially grow Comstock's crude reserve base.

Foolish conclusionGoodrich Petroleum and Comstock Resources have both done well in 2014, with their stocks up 60% and 50%, respectively. This has been fueled in part by strong data coming out of the Tuscaloosa Marine shale, which has propped up the valuation investors are willing to give to oil and gas companies with exposure to this emerging play. As Comstock Resources investors wait for more wells to come online in the Tuscaloosa, they can take in a nice 1.8% dividend to boot. For those who are really bullish on the Tuscaloosa, they should also take a closer look at Goodrich Petroleum.